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Monday, 20 May 2013

How to book car expenses where different FBT methods apply

How to book car expenses where different FBT methods apply
How to book expenses for the Car – different types of claims

If your business is conducted as a sole trader/individual:
Then car expenses can be claimed for income tax as:
  1. cents per KM (less than 5000km)
  2. 12% of cost of vehicle (more than 5000kms)
  3. 1/3 of actual expenses (more than 5000kms)
  4. Actual business % (based on 12 consecutive weeks of logbook)
What does this mean for keeping the books and records?

Arguably all car expenses should still be caught as business expenses and coded into the expenses and then it is up to the Tax Agent to get the right treatment for the tax return.

However it has an impact for GST! Technically and correctly all GST can be claimed back (if your client is GST registered etc etc) at the time of the expense BUT then there must be a GST adjustment (ie pay some GST back to the ATO) based on the private use of the vehicle. The Tax Agent advises how much was claimed as a tax deductible business expense, work out the GST that would apply to that amount and then reduce the next BAS (claim for GST back)by the difference between what was claimed and what should have been claimed for the entire tax year.

If the individual only claims c/km then NO GST should ever be claimed on the car expenses.

If your business is conducted as an entity and the car is provided for part private use then FBT probably should apply. FBT makes all expenses for the car deductible and therefore a full GST claim (all other things being equal).

How do we book this – just claim all the GST and allocate all expense to the expense.

What records are required for FBT?
Help out your business owner and the accountant by ensuring:
  1. Odometer readings are taken on all company owned cars.
  2. Log books are kept for a consecutive 12 week period each 5 years for a car or when the driver changes or if a new car for the same driver then a new log book
  3. Dissect the entertainment expenses according to the classes of entertainment as described in the ICB guide to FBT.
  4. Seek further guidance from the accountant for any other information they may require.
Note: FBT is fairly ugly and fairly complicated. A Bookkeeper and BAS Agent cannot advise on the imposition of FBT on a business however you can still book expenses and collate information for the Tax Agent to properly advise on FBT matters.

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